For those unfamiliar with the USDA home loan program, this loan is offered by the Department of Agriculture and is available to borrowers who live in or wish to purchase rural properties. Despite the large number of loan programs now available, many potential buyers are looking into USDA home loans. Why are they so popular and what are the advantages to this type of loan?
What Are The Benefits of a USDA Loan?
Although the USDA loan is popular for many reasons, here are the top five benefits offered by the USDA loan.
- Down payment
Qualified borrowers do not have to have a down payment. If they so choose, they can use a monetary gift or grant towards the mortgage loan.
- Interest rates
Since the U.S. government guarantees the loan, the borrower can not only get competitive interest rates from lenders but can also choose a 30-year fixed-interest mortgage. Effective September 2014, the borrower will also be able to get a 15-year fixed-rate mortgage.
- Credit History
Borrowers don’t have to have a great credit to be eligible for a USDA loan and can use other sources for credit references such as utility or cell phone companies.
- Purchase Price Amount
As long as the borrower has sufficient income to make the monthly payments, he or she has no maximum limits as far as purchase price.
- Income
The USDA is beneficial for those who do not have high incomes because it takes other factors into account when determining eligibility.
How Do USDA Loans Compare to Conventional Loans?
Although there are many similarities between USDA loans and conventional loans, USDA loans are more beneficial to first-time home buyers (as long as they're purchasing rural property). Here are some comparisons between the two loan types.
- Down payment
While conventional loans may require up to a 20% down payment, USDA loans require no down payment.
- Property location
While conventional loans can be use to purchase almost any type of property, USDA loans are restricted to rural properties.
- Credit History
While both loan types typically require credit scores of at least 660, USDA loans may take additional credit references into consideration if the scores are below 660.
- Additional Requirements
Conventional loans may require proof of employment and assets, USDA loans may waive these requirements if credit score is above 620.
How Do USDA Loans Compare to Other Government Loans?
Here are some similarities and differences between USDA loans and other government loans such as the FHA (Federal Housing Administration) and VA (Veteran's Affairs) loans, which are the two most well-known government loans.
- Credit Scores
VA and FHA loans usually require at least a 620 credit score, while USDA prefers 660 but allows credit references. FHA loans may also allow lower scores if there is a down payment.
- Down payment
VA and USDA require no down payment while FHA typically requires at least a 3.5 percent down payment.
- Work history
VA and FHA loans usually require a 12-month work history, but USDA loans do not.
- Citizenship
All the government loans require proof of residency or citizenship.
- Income guidelines
To be eligible for a USDA loan, the borrower’s income cannot be higher than 115 percent of the median income for the state or county. This does not apply to FHA or VA loans, which actually require higher income.
If you have a bad credit score, you aren't stuck renting forever! With the right loan program, you can be a homeowner before you know it.
